United States: Tenth Circuit Reverses Summary Judgment On Benefit Determination

Highlights

• A U.S. court of appeals reversed a district court's grant of summary judgment upholding a plan administrator's benefit denial. The court found that the district court erroneously deferred to the plan administrator's determination on the benefits claim, because the plan language granting discretion to the plan administrator was contained in a document that was not disclosed to plan participants.
• The court further found that because the administrator did not take into consideration the definition of medical necessity contained in an applicable medical policy that the benefit determination was faulty.
• The decision is noteworthy in that the court refused to review the claim denial under a deferential standard of review because it found that the required language granting the plan administrator discretion to interpret the plan and administer claims was not disclosed to participants.

The U.S. Court of Appeals for the Tenth Circuit has reversed a district court's decision to uphold a plan administrator's claim denial because the court determined that the district court applied the wrong standard of review – an arbitrary and capricious standard. Applying the U.S. Supreme Court's decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989) regarding the proper standard of review of a claims administrator's benefit determination under the Employee Retirement Income Security Act of 1974 (ERISA), in Lyn M. v. Premera Blue Cross, et al., No. 18-4098 (10th Cir., July 24, 2020), the Tenth Circuit Court held that the plan administrator's claim determination was not entitled to a favorable standard of review because the language granting the plan administrator discretion to interpret the plan and make benefits determination was contained in a document that was not adequately disclosed to plan participants. The court further found the district court's review of the claim determination faulty because the plan administrator applied an incomplete standard of medical necessity when assessing the administrative appeal.

Background

The parents of a minor child sought medical benefits on her behalf for residential psychiatric treatment. After Premera, the plan's claims administrator, denied the claim as medically unnecessary, the parents appealed the claim denial, which was upheld by Premera on the appeal. In denying the appeal, Premera relied on the plan's general definition of "medical necessity," included in the plan's summary plan description and not the more detailed definition of medical necessity found in an applicable medical policy. In the lawsuit, the parents sought more than $80,000 in unreimbursed charges.

At the district court level, the court applied a deferential standard of review to the participant's claim for benefits, finding that the "Plan Instrument" contained language that gave the plan administrator discretionary authority to interpret and administer the plan. The district court thereby determined that, under Firestone, the plan administrator's claim denial should be reviewed under an arbitrary and capricious standard of review. Applying that standard to Premera's motion for summary judgement, the district court deferred to the plan administrator's determination that the medical services were not medically necessary, and granted judgment in favor of Premera and the plan's fiduciary, Microsoft Corp.

Court of Appeals Reverses District Court's Decision

On appeal, the Tenth Circuit Court reversed the district court, and held that the plan administrator was not entitled to Firestone deference (and an arbitrary and capricious standard of review) because the "Plan Instrument" that contained the Firestone language was not known to participants. Specifically, the court found that the Plan Instrument was not referred to by the plan's summary plan description (SPD) or other document distributed to participants, and there was no indication to participants that there existed a plan document that contained language that limited judicial review of benefits determinations. The court found that the plan administrator could not rely upon a "secret" document that contained the Firestone language because it was, as a matter of law, insufficient to put the plan participants on notice of the limited scope of judicial review.

In a dissenting opinion, one justice found that the majority's opinion imposed burdens not required by ERISA, and that the SPD did inform participants of the right to request plan information and documents. But the majority, unpersuaded, specifically addressed the dissent on this point, finding that nothing informed the participants of the existence of a controlling plan document that may contain language limiting judicial review.

The court went on to find that the district court's upholding of Premera's denial of the administrative appeal was also erroneous, because Premera had applied the incorrect standard of "medical necessity" under relevant plan documents. According to the opinion issued by the court, both parties agreed that a determination of medical necessity required a review of the applicable medical necessity standards included in the SPD, as well as the underlying medical policy's more detailed definition of medical necessity. The reason the parties agreed that the standards of the underlying medical policy were essential to any determination was not addressed in the opinion. In the court's opinion, once it was agreed by the parties that a determination of medical necessity required a review of the general standards included in the SPD, as well as the specific standards set forth in the medical policy, any review that did not assess and rely upon both documents was faulty.

The court then noted that in reviewing the administrative appeal submitted by the parents, Premera in its decision relied solely on the general standards of the SPD to deny the claim. Under ERISA, a claim denial letter must include a reference to the specific plan provisions on which a decision was based. Applying this standard, the court noted that in the claim denial letter provided to the claimants Premera referred only to the general definition of medical necessity included in the SPD. While Premera asserted to the court that it had relied on the SPD as well as the underlying medical policy in making its decision on the claim, the court held that Premera's failure to refer specifically to the underlying medical policy and its definition of medical necessity in the administrative appeal denial letter contradicted this statement. The court also noted that when the claim was sent to an outside reviewer, the outside reviewer was told to rely exclusively on the terms of the SPD. Based on these facts, the court held that Premera had failed to properly apply the correct standard in determining medical necessity, and therefore, the district court should not have upheld Premera's denial of the claim, even when applying an arbitrary and capricious standard of review.

The plaintiff asked the court to forgo remand and make a decision on the matter as part of the appeal. While the court had already stated that the district court should have found that Premera acted arbitrarily and capriciously, the court declined to make a final decision on the matter. Because the district court had not reviewed the claim on a de novo basis, the court noted that the district court was in the best position to tackle review of the claim in the first instance.

Key Considerations

The court's decision is noteworthy in that the court refused to apply an arbitrary and capricious standard of review to a plan administrator's claim determination because the required language for such a standard was contained in a document that was not identified to plan participants.

Plan administrators and fiduciaries should ensure that controlling plan documents, including those containing important language such as Firestone discretionary language, are referred to in any SPDs distributed to plan participants.

Because of the importance of the deferential Firestone standard, plan administrators and fiduciaries should also consider including the Firestone discretionary language directly in a plan's SPD.

The court's decision further underscores that both the ERISA claims administrators and the plan's fiduciaries in charge of overseeing claims administrators must ensure that every claim denial satisfies the requirements of ERISA. This means not only ensuring that each claim denial is based on the full and correct terms of the plan, but also that every claim denial letter fully and accurately refers to the plan provisions and other relevant documents on which a decision is based.

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